Cashflow Crisis – Businesses now taking 54 days to settle payments

The financial health of the small business community has been called into question, with payment terms deteriorating to a shocking 54 days.

In a post on www.smartcompany.com.au 13 August it has reported that the federal government is asking businesses to pay invoices on time in business-to-business relations, with the release of a proposed new code of conduct.

According to the latest data from Dun & Bradstreet, based on eight million trade payment records, businesses are now taking 54 days to settle their accounts – up from the 53 days recorded during 2011 and 2012.

The issue of late payment terms has made an appearance during the election campaign. Coalition leader Tony Abbott has promised to allow small businesses the ability to charge interest on government contracts that go unpaid for more than 30 days.

The warning comes just as the government released a report in July about the state of small business finance.

The D&B data shows after trending at 53 days for two years, the improvements have been reversed during the past six months.

D&B chief executive Gareth Jones says in a statement the slowdown comes due to the “pressures of the current business environment”.

“The slowdown in the time that businesses are taking to pay each other during 2013 suggests that business conditions are not improving, and the proximity of a genuine economic pick-up is still some time away.”

The poor rate is even more surprising given the low interest rate environment, which makes repaying debts easier.

But as Jones points out, the slow cash flow cycle can be “vicious”.

“When one business pays late, it can force the other to delay its own payments until it has money available. This pattern appears to be at play within the business community at the moment”.